BEN GRIFFITHS: Don't allow firms to shirk dues by collecting millions of pounds of income here but route that cash offshore to minimise taxman's bill

Drug-maker Shire has finally fallen prey to US predator AbbVie, which has succeeded in nailing down a £32bn takeover bid for its London-listed rival.

The deal, which still needs shareholders’ approval, makes AbbVie the latest American giant to raid a foreign company with the clear strategy of reducing corporation tax bills.

Although AbbVie’s boss Rick Gonzalez denied this was the prime motivation, a so-called ‘tax inversion’ makes sense for the company which is facing a 35 per cent tax rate in the US – the highest in the industrialised world.

Bad taste: Although AbbVie boss Rick Gonzalez denied this was the prime motivation, a so-called 'tax inversion' makes sense for the company which is facing a 35 per cent tax rate in the US

Naturally enough, it has angered US lawmakers, threatening as it does to rob their citizens of billions of dollars in taxes.

US-based
Pfizer tried a similar wheeze with AstraZeneca, but was sent packing –
at least for now. And last month US medical devices-maker Medtronic
pulled off the biggest inversion to date in the healthcare sector when
snapping up Dublin-based Covidien.

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Forbes magazine has labelled the trend ‘The Great Tax Inversion Death Spiral’.

Why
a death spiral? Because the greater the threat that those on Capitol
Hill will plug the gap through which these tax avoiders are rushing, the
faster corporations’ dash for an inversion deal while they still have
the chance.

Many
want to shift their tax base because they are awash with cash they
earned overseas that will be heavily taxed if repatriated to the US.

Once
the AbbVie deal goes through the combined group’s effective tax rate is
expected to drop to 13 per cent, compared with 22 per cent at present.
And yet when one jurisdiction loses out on tax income, another stands to
gain.

In
this case Ireland has been a beneficiary, after Shire incorporated
itself in Jersey in 2008 and moved tax base to Dublin deliberately to
lower bills.

Britain
has been trimming its corporate tax rate with the clear intention of
boosting competitiveness and luring more international firms to this
jurisdiction.

However,
with companies actively looking to cut their tax bills there’s no
guarantee the UK will be an immediate beneficiary once a firm decides to
shift its base here.

There
are countless examples of businesses that collect millions of pounds of
income here, but route the cash via offshore jurisdictions in order to
minimise the bill from the taxman.

Politicians
on both sides of the Atlantic need to monitor these latest transactions
extremely closely and ensure proper taxes are paid wherever they fall
due.

Mechanical lift

Farnborough
Air Show will end tomorrow following a week of bumper announcements,
many of which have provided a substantial boost to the economy.

According to organisers ADS, £108bn of orders were announced during the event, up from £42bn at the last show in 2012.

The
clear winner of the unofficial transatlantic battle between airliner
manufacturers was Airbus, which trumped US rival Boeing with 496 orders
for passenger jets versus 201 for its Seattle-based rival.

Airbus
was largely boosted by its decision to revamp the top-selling A330
long-haul aircraft with Rolls-Royce engines, which promises to boost
fuel efficiency – of key importance for cash-strapped carriers feeling
the pinch from rising oil prices.

Derby-based
Rolls is a winner in this regard, along with the Airbus factory at
Broughton, North Wales, which makes all the wings for the European
giant’s passenger jets. Fabrice Bregier, head of Airbus’ airliner
division, even went so far as to describe it as the best Farnborough air
show in the company’s history.

Boeing
lauded its own performance, however, with the firm having already
secured orders for 783 airliners this year, compared with 648 for
Airbus.

The
hundreds of small and medium-sized firms who supply parts to the two
aerospace giants and their peers are also winners so long as the orders
keep flowing in.

Such
healthy competition, as well as the high technology on show at the
historic Hampshire airfield during the past week, should have proved
inspiring for the 7,500 young people who yesterday turned up to
participate in Farnborough’s ‘Futures Day’.

The
event sought to extol the virtues of a career in aerospace and those
based on science, technology, engineering and mathematics, the so-called
STEM subjects.

Aerospace
firms are working to attract new blood as the ageing workforce
approaches retirement, threatening to leave the industry with a dearth
of crucial skills.

All
in all, disappointments about the failure of the new F-35 jet fighter
to make it across the Atlantic after an engine fire aside, Farnborough
2014 has been an unrivalled success.